When it’s time for a mortgage renewal, some people feel compelled to sign quickly without asking too many questions. However, this crossroads – which will come up several times over the course of your life – can directly impact your finances in the short, medium, and long term.
With interest rates on the rise over the last few years and variable rates in flux, certain decisions can be a boon for your budget… or put you in a precarious financial situation. This article will help you better understand the steps involved in a renewal, the pitfalls to avoid, and the options available to you.
How does a mortgage renewal work?
A mortgage renewal marks the end of one term and the start of a new contract for the remainder of your loan (the most common term lengths are 1, 3, and 5 years). It’s an opportunity to negotiate a new interest rate, review your repayment period, or even consider refinancing.
When you renew, you can:
- Accept your current lender’s renewal offer
- Shop around for more favourable terms from other financial institutions
- Hire a mortgage broker to compare different options and get a more advantageous rate
It’s best to start evaluating your options 4 to 6 months before the end of your term. That will give you plenty of time to compare rates, speak with a broker if you want, and think about potential adjustments without the stress. Some lenders will even let you lock in a rate up to 120 days in advance – which is great when rates are volatile.
How interest rate hikes directly impact your budget
Current interest rates are significantly higher than they were just 3 to 5 years ago. Homeowners who previously had a favourable rate are therefore likely to feel the burn when their mortgage comes up for renewal.
In 2020, many borrowers had a fixed rate of 2% or less. In 2025, these same loans are hovering around 5% or 6%. On a $300,000 mortgage loan amortized over 25 years, the associated monthly payment will have risen from $1,270 to more than $1,840 – an increase of more than $570 every month.
If you maintain the same amortization period (for example, 15 years remaining), this increase can put serious pressure on your budget, especially if you’re already feeling squeezed by the rising cost of living. That’s why it’s essential to take the time to evaluate your options before signing a renewal.
Amortization extensions for short-term relief
One way to offset higher payments is to extend the repayment period for your loan. By increasing the amortization period – for example, from 15 to 20 years – your monthly payment will become more affordable.
This solution can offer some relief. But it also comes with an asterisk: the total cost of your mortgage will go up, because you will be paying more interest over a longer period of time.
In some cases, it’s a necessary compromise to create a little breathing room. It’s not inherently a bad move, but it’s important to understand the long-term implications, especially when it comes to the equity accumulated in your house or condo and preparing for retirement.
Refinancing to pay off debt: proceed with caution
Renewing your mortgage can also be an opportunity to borrow a little more than the remaining balance. Refinancing applies to the equity you’ve accumulated in your home – the amount you’ve already paid off and any increase in the property’s value. The additional money borrowed can be used to pay off higher-interest debts, like credit cards.
On paper, it seems logical: you’re replacing high-interest debt with a loan at a lower rate. But in reality, you’re extending your debts over a very long time period, which can make them even more costly in the long run.
Above all, if those credit cards remain active and you don’t change your spending habits, there’s a high risk that you’ll fall back into debt. That’s why it’s essential to have a strategy in place and integrate this decision into a broader financial recovery plan.
Never lose sight of your long-term goals
In our day-to-day lives, it’s normal to look for ways to reduce our spending. But don’t forget the bigger picture: a mortgage is also a tool for building value.
The faster you pay off your loan, the more equity you’ll build. And as retirement approaches, a paid-off property represents an important safety net, especially as your income decreases.
What if you locked in a high rate?
You may have renewed your mortgage or purchased your property at a time when rates were at their highest, leaving you with very little wiggle room. Now that some people are talking about a potential drop, you may be wondering if it’s possible to renegotiate.
It is possible – but it’s also not free. Breaking your mortgage contract before the end of your team almost always incurs a penalty. The amount will depend on the type of rate, the time left on the contract, and the conditions of your loan. Switching to a different institution or reopening a mortgage can also entail notary fees, certificate of location fees, and other charges.
If you’re already on a tight budget, it’s best to check whether this decision would really bring relief – or if it might add additional pressure. Other approaches might help you lighten your load.
Each choice you make today – prolonging, refinancing, renegotiating – has a future impact. It’s all about finding a balance between instant relief and long-term stability.
If your main concern when it’s time to renew is reducing your monthly payments, it’s worth talking to an expert.
Our licensed insolvency trustees can help you take stock, without pressure or judgment. Book a free appointment.